The DOJ's Plan To 'Fix' The T-Mobile Merger Isn't Going To Work

from the fluff-and-nonsense dept

As expected, the Department of Justice has signed off on T-Mobile's controversial $26 billion merger with Sprint. You'd be hard pressed to find many objective folks who think greater consolidation in the telecom space is a good idea, given the deal will likely result in less competition, higher prices, and some major job cuts as redundant positions are inevitably eliminated. And in countries where four major wireless carriers were reduced to three, the resulting problems are usually pretty damn obvious.

To make its approval of the deal seem like a good idea, the DOJ has come up with a quirky solution: it is demanding that Sprint and T-Mobile offload prepaid brand Boost Mobile and some spectrum to Dish Network, who then will (theoretically) use those assets to create a new fourth carrier to replace Sprint. The announcement frames the proposal as such:

Under the terms of the proposed settlement, T-Mobile and Sprint must divest Sprint’s prepaid business, including Boost Mobile, Virgin Mobile, and Sprint prepaid, to Dish Network Corp., a Colorado-based satellite television provider. The proposed settlement also provides for the divestiture of certain spectrum assets to Dish. Additionally, T-Mobile and Sprint must make available to Dish at least 20,000 cell sites and hundreds of retail locations. T-Mobile must also provide Dish with robust access to the T-Mobile network for a period of seven years while Dish builds out its own 5G network.

There are some painful problems with this proposal.

One, Dish Network and its CEO, Charlie Ergen, have already been hoovering up valuable spectrum for years under the promise they'd build a wireless network. And yet despite endless promises, that network has never arrived. Even T-Mobile complained about this back when Dish initially opposed the deal. Dish has, effectively, been engaged in "spectrum squatting" for the better part of the last decade with little penalty from the government. This proposal places an awful lot of trust in a company that has a pretty impressive history of empty promises.

The other problem is one of enforcement. To make this smattering of spectrum options and some prepaid assets into a viable fourth competitor will require a lot of government hand-holding. The DOJ and FCC will need to not only ensure that Dish meets all its deadlines and T-Mobile keeps all its promises, but they also have to prevent AT&T and Verizon (who have an obvious, vested interest in just three viable competitors) from screwing up the proceedings. The idea that Ajit Pai, who has yet to hold the industry accountable on a single issue of substance (most recently location data scandals) will just magically decide to do so here is fairly laughable.

Unless they want to face greater price competition, T-Mobile, AT&T, and Verizon have every incentive to ensure that this new proposal never really works. And with former Verizon lawyers now leading the FCC and the DOJ, this particular administration isn't particularly likely to do very much about it once that happens. Many experts believe this is little more than a stage play that ends with Dish never actually building a major network, and selling its collected spectrum for a tidy profit:

For the life of me, I can’t figure out why the DOJ thinks Dish is going to build out, using divested T-Mo/Sprint spectrum, its own consumer wireless network to preserve wireless competition. For three reasons, I am skeptical. 1/

The third problem is that a collection of spectrum and a prepaid carrier does not a vibrant competitor make. Boost Mobile has just 8 million prepaid subscribers, compared to more than 150 million each for AT&T and Verizon. Both AT&T and Verizon also enjoy geographical monopolies in the business data services (BDS) market that feeds things like cellular towers. Wall Street analysts like Craig Moffett believe Dish lacks the assets and expertise to actually make it work. Consumer groups argue that the simpler, cleaner tack would have been to simply block the deal, then force Sprint (whose shaky financial footing has been overstated for effect) to find an interested partner (Comcast, Spectrum, Google, Altice) outside of the merger process.

Numerous State AGs have sued to block the deal for just this reason, and the merger can't be completed until that lawsuit is settled. NY AG Letitia James made it abundantly clear in a statement that her office wasn't impressed by the DOJ proposal:

“The promises made by DISH and T-Mobile in this deal are the kinds of promises only robust competition can guarantee,” said Attorney General Letitia James. “We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers, and innovation.”

Again, the history of US telecom is not murky on this subject: major mergers routinely erode competition, raise rates, and result in worse customer service. That's great for investors and executives, but less so for the end user. It's the primary reason you all hate Comcast so much, and this "growth for growth's sake" approach to business is the primary reason the US suffers from expensive, substandard broadband. The DOJ's proposal pretends to remedy the problems with the T-Mobile merger with little more than fluff and nonsense.

If this merger survives and follows historical precedent, in five years when the deal's negative implications are becoming evident to consumers, the regulators that approved it will be working as telecom lobbyists or at telecom think tanks. And most of the folks that supported the deal will pretend none of this ever happened. It's the American way.